The Government is considering cutting
its Public Sector development Program (PSDP) by about Rs. 80 billion to meet the
shortfall in revenue collection and the growing expenditure on subsidies on food
items and petrol and petroleum products.

According the finance Minister of the
caretaker government, the government incurred an expenditure of about Rs. 54
billion as subsidy on oil price during the last 7 months. The subsidy on food
and many other food items sold through utility stores is costing national
exchequer about Rs. 24 billion a month for the last four months. There has been
a shortfall of Rs. 36 billion in the revenue collection during the first half of
current (2007-08) financial year ending on Dec-31st -2007. In a meeting called
by the Planning Commission in Islamabad last week on the request of the Ministry
of Finance, the four provincial governments were asked to reduce their
development budgets for the current year. Surprisingly however, the
representatives of the provincial government refused to trim their ADPs.

Confronting a rising budget deficit,
the federal government has asked the Punjab, Sindh and NWFP governments to
squeeze out more than Rs. 40 billion from their development budgets of the
current fiscal year. Sindh was being asked to take out Rs. 10 billion, Punjab Rs.
25 billion, and NWFP Rs. 5 billion plus from their respective development
programmes of 2007-08. Sindh has drawn up a development programme of Rs. 50
billion, Punjab Rs. 150 billion and NWFP more than Rs. 20 billion from their own
resources stipulated by the National Finance Commission in the federal divisible
pool. Balochistan entirely depends on federal funds for its Rs. 10 billion
development outlay and hence the province for a cut. "All the three
provinces have opposed this cut on development programme," a reliable
source in the government said.

Dr. Akram Sheikh, Deputy Chairman
Planning Commission chaired the inter-provincial meeting in Islamabad last week
to discuss the possibility of cut in the development funds of the provinces.
Sources said that the proposal to cut the size of the ADPs was discussed in
length and various options were considered. The authorities of Planning
Commission came up with a plan to cut in federal Public Sector Development
Programme as well as major slash in the funds of ADPs of the provinces, a senior
official of Planning and Development Department of Sindh who represented the
province in the meeting told.

Sources said that it was discussed in
the Planning Commission meeting that billions of rupees worth property was set
on ablaze and damage occurred to public as well as private property in violence
acts erupted in the wake of murder of former Banazir Bhutto on December 27th
which resulted into a big shortfall in the resource collection the country.

The authorities of federal government
were of the view that billion of rupees were needed to rehabilitate the damage
occurred to public property while government also has a plan to compensate the
losses of private level on some level. While the representatives of four
provinces showed their unwillingness to curtail the provincial annual
development programme of current FY08 on the basis of major losses suffered to
private sector.

There was no justification to cut in
provincial ADP, the representatives argued in the meeting. While representatives
of Punjab and NWFP governments conveyed that they didn't incur major losses as
compared to Sindh, hence both provinces took firm stand for not curtailing their
funds. The Punjab government informed the meeting that the total outlay of the
ADP was 150 billion of current FY08 out of which it had already released 105
billion in last six months for the development projects. The authorities of
federal government did not stress on Balochistan to cut the funds of annual
development programme of province as it had already meager resources for ADP,
official source confirmed. The Sindh government, on the ground of losses
occurred to private sector, showed unwillingness to reduce its ADP.

The senior official of Sindh government
confirmed that final decision has not taken in last meeting and federal
government may convene another meeting to discuss the issue in next few days.
While official of Sindh government were of the view that the tug of war
continued between Planning commission and Federal Finance Ministry on the issue
of curtailment of PSDP funds.

As the caretaker government failed to
evolve consensus in the meeting the issue of budget adjustment has been left to
president to decide.

Informed sources told PAGE that a
number of proposals were being worked out for the required budgetary adjustments
by the ministry of finance. It suggests that the government will need to reduce
the allocation for the Public Sector Development Programme along with slightly
higher fundraising through national savings schemes to bridge the gap between
available resources and expenditures.

The federal and provincial governments
were able to utilize Rs. 128 billion n the first quarter (July-September) of the
current fiscal year. Another 100 billion was utilized by project executing
agencies till December 31, 2007. The second quarter funds utilization usually
remains higher than the first quarter because of a pick-up in implementation
activities after the start-up problems.

The sources said that the pace of
implementation had slowed down in the recent weeks because of the elections and
overall security environment which also resulted in the evacuation of foreign
engineer from the projects sites.

Officials at the finance ministry
expect the overall development expenditure will remain more or less at the last
year level or at best touch Rs. 450 billion. Caretaker finance minister Dr.
Salman Shah said the government had half a year to make fiscal adjustments which
may include a reduction in the development budget in the last quarter of the
financial year because the government had to meet the overall objective of
restricting fiscal deficit at four per cent of GDP. The government had allocated
an amount of Rs. 520 billion for the current year's PSDP (2007-08) which was
about 25 per cent higher than the previous year's Rs. 415 billion.

An official at the Planning Commission
said that it was yet to receive proposals for a reduced PSDP, but agreed that a
mid-year review of the overall economic situation, including the development
programme, was currently in the final stage. He said that there was a likelihood
that releases for slow moving projects or those failing to take off owing to
various bottlenecks might be withheld on the basis of mid-year review.

Last year, the federal and provincial
governments were able to spend about Rs. 435 billion or five per cent of GDP.
This year, the government has transferred about 25 per cent of total funds to
the provincial governments and federal executing agencies at the beginning to
help them start the projects. The utilization of Rs. 128 billion funds in the
first quarter of this year was, therefore, almost double the Rs. 68 billion
utilized during the same period last year.